So You Completely Mismanaged Oil Assets that Should Have Made You the Richest Country In the World, Now What?

From Bloomberg:

Chavez’s 70% Gold Bet Unravels as Reserves Plunge: Andes Credit

The bet on gold that former Venezuelan President Hugo Chavez made in the final years of his life is collapsing at the wrong time for his country.

Chavez, who argued that Venezuela should move away from the “dictatorship of the dollar,” stockpiled more than 70 percent of Venezuela’s foreign reserves in gold by 2012, the highest percentage among all emerging-market countries and more than 50 times that held by neighbors Colombia and Brazil, according to the World Gold Council.

After rewarding Venezuela with a rally of almost 400 percent in the past decade, gold has tumbled 25 percent this year, helping drive the central bank’s reserves to an eight-month low and compromising the government’s ability to repay foreign debt. The yield on Venezuela’s dollar-denominated bonds has risen 62 basis points, or 0.62 percentage point, to 11.84 percent in the past month, compared with an average increase of 57 basis points for other countries in Latin America.

“Venezuela’s reserves have taken a big hit,” Francisco Rodriguez, an economist at Bank of America Corp., said by phone from New York. If current gold price levels continue, “then you will see an increase in perception that Venezuela’s capacity to pay is weakening.”

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Central bank reserves fell below $25 billion last week from as much as $29.9 billion last year even as Chavez’s handpicked successor, Nicolas Maduro, has cut dollar supplies for importers, creating shortages of everything from toilet paper to butter. Standard & Poor’s reduced Venezuela’s credit rating to its lowest in eight years last month as the shortages worsened and consumer prices rose at the fastest pace in Latin America....MORE

 HT: FT Alphaville

In the words of Alex Trebek in our Wednesday Cheers post:

"...And what that means is, even if you're wrong, as long as you didn't do anything foolish like wager everything, you're a cinch winner..."

Gold $1213 down $38.90.

Venezuela's oil reserves are probably the largest in the world at an estimated 297 billion barrels which is about 10% greater than Saudi Arabia's estimated 265 billion barrels.

The state oil company PDVSA cannot earn enough to cover all its costs and finance future commitments.